6/2/2017


Donald Trump continues to be the spotlight of the world after he was sworn in as President of the United State on Jan 20. Within two weeks after taking the office, Trump has already signed several executive orders, including the abolition of Obamacare, withdrawal of the Transpacific Partnership Agreement (“TPP”), construction of fence along the US-Mexico border as well as a halt on the US refugee program. As we believe Trump will continue to issue executive orders to honor his campaign commitments, we advise investors to avoid sector with potential political risk such as export-oriented industry, and accumulate financial stocks with international exposure.

Over 13,000 executive orders have been issued historically

The executive order is the executive power granted to the President under Article 2 of the United States Constitution. It is a written directive issued by the President to the Federal Government without being approved by Congress. More than 13,000 executive orders have been issued since the first US president, George Washington. In fact, Congress can check and balance executive orders issued by the President by overthrowing or amending of executive order through legislation, or even refusal of making relevant funding. Nonetheless, all laws require the President to sign to become effective, implying that the President has the veto right to overthrow the result of congressional scrutiny. The Congress needs the support of two-thirds of parliamentarians in order to overthrow the President’s decision.

Trump signed a number of executive orders within a short period of time

Reviewing Trump’s first ten days as the President of the United States, we can see his strong will to fulfill his election commitments. Within the first few days of his Presidency, he issued executive order to formally withdraw from the TPP, and claim to renegotiate North American Free Trade Agreement (“NAFTA”) with Mexico and Canada. He also introduced the largest deregulation action of the United States, eliminating 75% of existing regulations to boost economic development.

As for the immigration and national security policy, which causes a highly controversy internationally, he issued executive order to construct a fence along the US-Mexico border to block illegal immigrants, and asked Mexico to pay for the expenses. When the Mexican government expressed opposition, Trump claimed to impose a 20% tariffs on all Mexican imported goods to cover the construction cost, deteriorating the bilateral relationships between the US and Mexico.

The continuous issuance of executive orders from Trump will disfavor export-oriented stocks

Although the Congress has the power to overthrow Trump’s executive orders, the House and Senate are currently controlled by the Republicans, with Democrats only accounting for 46% and 44% of the House and Senate respectively, far below the two-thirds majority. Even if some Republicans do not support Trump’s policy, it will be difficult to get more than two-thirds support in both House and Senate.

We expect Trump will continue to utilize executive order to implement controversial policies. If Trump introduced any policy against China, such as the imposition of heavy tariffs, relevant industries will be affected. We thus recommend investors to avoid export-oriented stocks, and accumulate financial stocks with international exposure, which is expected to be the beneficiary of financial deregulation.

General Disclosure and Disclaimer:
Frontier Capital Management Limited (“FCM”) is a subsidiary of Frontier Financial Group (“the Group”). It is regulated and licensed by Hong Kong Securities and Futures Commission, also is an Exchange Participant of The Stock Exchange of Hong Kong Limited, and a Direct Clearing Participant of Hong Kong Securities Clearing Company Limited.
The information contained in this website is for informational purposes, and does not intend to recommend, invite, offer, or confirm of any terms. Based on the sources that are believed to be reliable, FCM attempts to provide accurate, complete, and up-to-date information and analysis. However, FCM cannot represent or guarantee its accuracy, completeness, or timeliness of such source and information. Before making any decision on your investment, you should weigh the provided information carefully and bear any responsibility and risk incurred. And you should seek for advice of a professional financial advisor.
The Group, its subsidiaries and connected persons may have held some of the equity securities mentioned in this article, but the Group and FCM will place your financial interests ahead of their own.